Why Aaron's (AAN) Stock Is Dropping Today

NEW YORK (TheStreet) -- Shares of Aaron's Inc. (AAN) are falling -4.53% to $32.01 after it lowered its second quarter adjusted diluted earnings guidance to a range of 34 cents to 37 cents from 43 cents to 48 cents and cited poor performance at its core business.

The average estimate of analysts surveyed by Capital IQ had expected 46 cents per share for the second quarter ending in June.

The furniture retailer said it also said it will shut down 44 underperforming stores in the third quarter, and continue other cost reduction initiatives.

TheStreet Ratings team rates AARON'S INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate AARON'S INC (AAN) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, solid stock price performance and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

AAN's debt-to-equity ratio is very low at 0.12 and is currently below that of the industry average, implying that there has been very successful management of debt levels.

Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.

The gross profit margin for AARON'S INC is currently very high, coming in at 84.30%. Regardless of AAN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 6.54% trails the industry average.

AAN, with its decline in revenue, slightly underperformed the industry average of 0.9%. Since the same quarter one year prior, revenues slightly dropped by 1.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

AARON'S INC's earnings per share declined by 20.9% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, AARON'S INC reported lower earnings of $1.59 versus $2.25 in the prior year. This year, the market expects an improvement in earnings ($1.98 versus $1.59).

The rent-to-own company announced Monday that it was considering strategic options such as a sale, a move that comes five months after the activist behind Engaged Capital succeeded at installing directors to the company's board.